Tips to Help Merchants Avoid Credit Card Chargebacks


Chargebacks occur when customer file a dispute with their bank concerning a credit/debit card transaction. The problem stems from the fact that the merchant isn’t informed about the dispute process or is informed when it’s already too late. On average, a merchant loses $2.40 per every dollar of fraud, meaning a $100 chargeback costs the merchant at least $240.


The actual chargeback reasons can be associated with criminal fraud, merchant errors, and friendly fraud. Fortunately, you can take measures to fight and prevent chargebacks to a great extent. Chargebacks may be reduced by as much as 40%.


Here are points to focus on when trying to reduce the risk of chargebacks:


  1. 1.      Chargeback Issues

Identify immediate issues associated with your chargebacks, such as canceled recurring transactions and unrecognized transactions.


  1. 2.      Customer Service Protocol

Review and edit call center scripts to make sure your customers understand how to cancel and do it easily. Ensure customers know when products will be shipped and when they should be delivered.


  1. 3.      Authorization Controls

Merchant account providers offer automatic updates to cardholder account information that can help reduce authorization declines for card-on-file merchants. Consider using them.


  1. 4.      Outdated or Ineffective Fraud Controls

Look for overlap in fraud prevention tools. Merchants who use several vendors should realize that some of the tools or features may be redundant.


  1. 5.      Processor Protocol

Every processor has its own protocol regarding credit cards acceptance. Check the expiration date and enter the security code on the front/back of the card for card-present (CP) purchases. Follow other specific requirements by your processor.


  1. 6.      Payment Descriptor

Your payment descriptor (the merchant name and other identifying details on the customer’s credit card statement) should be clear so that customers can recognize you easily.

  1. 7.      Customer Authorization

Get the customer’s authorization in writing. Some merchants require customers to sign a contract that represents the specific services they’ll provide.


  1. 8.      Customer Service Issues

Take advantage of chargeback notifications provided by credit card processors so you can deal with chargebacks promptly.


  1. 9.      Warning Signs of Fraud

Pay attention to alerts associated with suspicious details, such as a wrong credit card security code or billing and shipping addresses that don’t match.


  1. 10.  Employee Training

Train your employees in how to deal with both card-present and card-not-present transactions (CNP). Teach them fraud and chargeback prevention techniques so they can look for suspicious transactions, verify signatures in CNP transactions, and obtain signatures on contracts and sales orders when appropriate.


  1. 11.  Records

Keep accurate records of customers’ credit card transaction dates, amounts and authorization information. They’ll be important when fighting a chargeback.


  1. 12.  Each Chargeback Case

Fight a chargeback only if you think you have chances to win the case.


  1. 13.  Fraud Detection Tools

Use fraud detection tools like AVS, card security codes, and 3D secure.


  1. Customer Service

Improve your customer service by replacing IVR phone systems with 24/7 human support teams, replying to emails promptly, and regularly checking social media accounts.


  1. Friction Associated with Recurring Payments

You can reduce it by clearly sharing the terms of service, offering a “no strings attached” cancellation policy, fulfilling cancellation requests quickly and completely, and making sure customers understand rates and changes.


  1. Large Purchases

Use delivery confirmation for large purchases.


  1. Product Descriptions

Write accurate product descriptions in details.


Take the necessary steps to protect yourself against unfair chargebacks. Turn to a reputable payment processor for chargeback insurance.



Author Bio: Electronic payments expert, Blair Thomas, co-founded eMerchantBroker in 2010. His passions include writing/producing music, and travel. eMerchantBroker is America’s No. 1 chargeback insurance company, serving both traditional and high-risk merchants.